UKRAINE’S ECONOMYThe Ukrainian Economy: Where Now for the Future?

The University of Cambridge Faculty of Economics Assistant Professor Alexander Rodnyansky (Christs’ College, Cambridge) says, “war will always have a catastrophic impact. As you’d expect, production is collapsing, and the economy has given up percentages of GDP growth.”

He is an economic adviser to Ukrainian President Zelensky, and is based in Kyiv at the moment. “President Zelensky’s economic reforms reflect the desire of the Ukrainian people to edge towards Europe: there is no doubt that that is where their heart lies. Ukrainians would like to live in a capitalist democracy, and they strive towards Europe. Now, Russia has consolidated our nation to such an extent that nobody could have ever imagined.”

The World Bank has warned the war in Ukraine is “a catastrophe” for the world, which will cut global economic growth, and it comes at a bad time economically for the world because inflation was already rising.

“We now have surging oil prices and a real worry in terms of grain supply and other global supply chains,” says Assistant Professor Rodnyansky. “The economic impact of what is happening here stretches far beyond Ukraine’s borders. However, the increase in global energy prices is what most people will notice first. If you pay more at the pump in the UK, that is a direct consequence of the invasion. The war may seem remote for many people, but it will hit the poor the most and sharply increase inflation when it was rocketing anyway.”

Russia and Ukraine are big food producers, and the World Bank has also warned that food prices have also been pushed up by the war and are a severe problem for people in developing countries. Ukraine is the world’s biggest producer of sunflower oil, with Russia number two, according to S&P Global Platts. Between them, they account for 60% of global production. The two countries also account for 28.9% of global wheat exports.

Besides, the war could disrupt the supplies of neon and palladium, which are vital ingredients in the production of chips. Ukraine manufactures about 90% of high-grade neon used to make chips by multinational semiconductor companies. Palladium prices already reached record highs at the beginning of March amid concerns about supply disruptions. These developments mean that prices of final high-tech goods could rise for consumers in the foreseeable future.

GDP was expected to increase by 3.4% in Ukraine before the war. Now, war means “a disastrous impact for the country’s economy, and indeed for the wider region of Eastern Europe,” according to Assistant Professor Rodnyansky.

However, the direct consequences of the war are causing the most concern. “Here, I can see in Kyiv and in the wider region many roads and bridges have been destroyed. It will cost billions to rebuild over the years when the war is over,” he says. “I can’t put a figure on it because the total keeps on rising. But it is huge. We’ve given up percentages on GDP growth just because of what happened already.”

With hundreds of thousands of Ukrainians fleeing the country or joining the fight against Russia, the workforce has shrunk dramatically, making it challenging to keep the wartime economy going. “Production is just collapsing,” he says. “The few factories which are left standing have few workers, and in many cases, they have no electricity anyway.”